2. A brief description of Consumer Price Inflation

Consumer price inflation is the speed at which the prices of goods and services bought by households rise or fall. Consumer price inflation is estimated by using price indices. A way to understand a price index is to think of a very large shopping basket containing all the goods and services bought by households. The price index estimates changes to the total cost of this basket. An infographic explains how consumer price inflation is calculated. Consumer price indices are published monthly.

A price index can be used to measure inflation in a number of ways. The most common is to look at how the index has changed over a year. This is calculated by comparing the price index for the latest month with the same month a year ago. This is known as the 12-month inflation rate. This bulletin measures inflation to September 2015, so the 12-month rate measures changes in prices between September 2014 and September 2015.

A range of measures of consumer price and other price inflation are published. A tale of many price indices summarises information on the different measures.

3. Consumer Prices Index (CPI)

What is the CPI?

The CPI is a measure of consumer price inflation produced to international standards and in line with European regulations. First published in 1997 as the Harmonised Index of Consumer Prices (HICP), the CPI is the inflation measure used in the Government’s target for inflation.

Latest figure and long-term trend

The CPI 12-month rate (the amount prices change over a year) between September 2014 and September 2015 stood at a negative 0.1%. This means that a basket of goods and services that cost £100.00 in September 2014 would have cost £99.90 in September 2015. This continues the trend of most of 2015 when inflation had been at or around 0.0%.

In the year to September 2015, food prices fell by 2.5% and prices of motor fuels fell by 14.9%. These 2 groups have provided some of the largest downward contributions to the 12-month rate during 2015. In September 2015, the food and motor fuels groups in total reduced the CPI 12-month rate by approximately 0.8 percentage points. Historically, price movements for these products have been among the main causes of inflation. An article was published in November 2014 which outlined some possible factors that may be affecting prices (477.2 Kb Pdf).

The CPI can be divided into goods and services components. The 12-month rate for the former stood at a negative 2.4%, while the latter stood at a positive 2.5%. Over the last 25 years, goods inflation has generally been lower than services inflation. The gap between the two has widened noticeably over the last year, from 2.2 percentage points in the year to September 2014 to 4.9 percentage points in the year to September 2015 – the largest gap since April 2003. The impact of factory gate and raw material prices will likely have a larger impact on the price of goods, whereas wages and property costs could be larger factors for services.

Figure A shows the contributions to the CPI 12-month rate in September 2015 compared with the contributions to the 12-month rate a year earlier. A larger version of the chart can be viewed by clicking on it (HTML version only).

Figure A: Contributions to the CPI 12-month rate: September 2014 and September 2015

United Kingdom

Source: Office for National Statistics

Notes:

Individual contributions may not sum to the total due to rounding

More information on the contents of each group can be found in Table 3 in the accompanying consumer price inflation reference tables

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Figure B shows the CPI 12-month rate over the last 10 years. Table A shows the CPI 1-month rate (the amount prices change between 2 consecutive months), 12-month rate and index values for the last year. A larger version of the chart can be viewed by clicking on it (HTML version only).

Figure B: CPI 12-month inflation rate for the last 10 years: September 2005 to September 2015

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Consumer Prices Index (CPI): What are the main movements?

This section explains which goods and services had the biggest impact on the change to the 12-month rate between August and September 2015 and, where relevant, considers the longer-term inflationary trends for these goods and services.

The change in the CPI 12-month rate can be calculated by comparing the 12-month rates for 2 consecutive months. An alternative, and equally valid, approach is to calculate it by comparing the price change between the latest 2 months and the price change between the same 2 months a year ago. Explaining the contribution to change in the 12-month rate (37.1 Kb Pdf) is a diagram explaining the calculation.

The CPI fell by 0.1% between August and September 2015 compared with a negligible change between the same 2 months a year earlier. This is the first time that the CPI has fallen between August and September.

The largest downward contributions to the change in the CPI 12-month rate between August and September 2015 came from:

clothing and footwear: prices, overall, rose by 2.8% between August and September this year compared with a larger rise of 4.0% between the same 2 months a year ago. As prices rose by less than a year ago, this resulted in a downward contribution to the CPI 12-month rate. Clothing prices, overall, always rise between August and September. However, this was the weakest growth since 2008, with a higher proportion of clothing items on sale in September 2015 when compared with September last year. Taking the summer (May to September) as a whole, clothing and footwear prices increased by 0.4% compared with larger increases of 0.9% and 1.2% over the same period in 2013 and 2014 respectively

fuels and lubricants (part of the "transport" category): prices, overall, fell by 2.9% between August and September this year compared with a smaller fall of 0.6% between the same 2 months a year ago. The largest downward contribution came from petrol, with prices falling by 3.7 pence per litre between August and September this year compared with a fall of 0.8 pence per litre between the same 2 months a year ago. Diesel prices are now at their lowest level since December 2009, standing at 110.2 pence per litre

gas (part of the "housing and household services" category): prices, overall, fell by 2.1% between August and September this year, compared with no change between the same 2 months a year ago, with price reductions from a major supplier

There were no notable upward contributions to the change in the CPI 12-month rate between August and September 2015.

Figure C shows the contributions to change from each part of the CPI basket of goods and services. A larger version of the chart can be viewed by clicking on it (HTML version only).

Figure C: Contributions to the change in the CPI 12-month rate: September 2015

United Kingdom

Source: Office for National Statistics

Notes:

Individual contributions may not sum to the total due to rounding

More information on the contents of each group can be found in Table 3 in the accompanying consumer price inflation reference tables

CPIH is a measure of UK consumer price inflation that includes owner occupiers’ housing costs (OOH). These are the costs of housing services associated with owning, maintaining and living in one’s own home. OOH does not include costs such as utility bills, minor repairs and maintenance, which are already included in the index.

CPIH uses an approach called rental equivalence to measure OOH. Rental equivalence uses the rent paid for an equivalent house as a proxy for the costs faced by an owner occupier. In other words this answers the question “how much would I have to pay in rent to live in a home like mine?” for an owner occupier. OOH does not seek to capture increases in house prices. Although this may be inconsistent with some users’ expectations of measures of OOH, the inclusion of an asset price and therefore capital gains would make the index less suitable for a measure of consumption. OOH currently accounts for 17.8% of the expenditure weight of CPIH. This compares with a weight of 19.5% in 2005.

Currently, the method of calculation, the population coverage and the basket of goods and services are the same as the Consumer Prices Index (CPI), with the exception of OOH. The method of deriving the weights for CPIH and the data used for these are also the same as for CPI, with the exception of OOH. This can result in some differences from the CPI.

In September 2015, the 12-month rate (the rate at which prices increased between September 2014 and September 2015) for CPIH stood at 0.2%, down from 0.3% in August 2015. The difference between the CPI and CPIH annual rates in September 2015 was 0.3 percentage points, the same as the difference in August. Owner occupiers’ housing costs increased by 0.1% between August and September 2015, the same as between these months a year earlier. This meant it had a negligible impact on the change in the CPIH 12-month rate between the 2 months.

Figure D shows the CPIH and OOH component 12-month rates since January 2006 (the earliest date for which the official CPIH 12-month rate can be calculated). The CPI 12-month rate has been included for comparative purposes. Table B shows the CPIH and OOH component 1-month and 12-month rates and index values for the last year. A larger version of the chart can be viewed by clicking on it (HTML version only).

United Kingdom

Source: Office for National Statistics

Notes:

The National Statistics status of CPIH has been discontinued pending work to investigate and improve the method for measuring owner occupiers' housing costs in this index. The improvements from the resulting development work were introduced as part of the February 2015 dataset with the historical series revised back to 2005

The time series for this chart will be gradually increased up to a time span of 10 years as more periods of data become available

1. The National Statistics status of CPIH has been discontinued pending work to investigate and improve the method for measuring owner occupiers' housing costs in this index. The improvements from the resulting development work were introduced as part of the February 2015 dataset with the historical series revised back to 2005

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5. Retail Prices Index (RPI) and RPIJ

In accordance with the Statistics and Registration Service Act 2007, the Retail Prices Index and its derivatives have been assessed against the Code of Practice for Official Statistics and found not to meet the required standard for designation as National Statistics. The full assessment report can be found on the UK Statistics Authority website.

RPIJ is an improved variant of the Retail Prices Index, which is calculated using formulae that meet international standards. The rationale for creating RPIJ was to give users a better alternative to the RPI if their needs were for a measure of inflation based on the same population, classifications, weights, etc as the RPI. Currently, RPIJ also acts as an analytical series in that it allows users to see the impact of using the Jevons (which meets international standards) in place of the Carli formula (which does not meet international standards) in the RPI. The use of the different formulae at the elementary aggregate level is currently the only difference between the 2 indices. Detailed goods and services indices are not produced for RPIJ.

In September 2015, the 12-month rate for RPIJ stood at 0.1%, down from 0.5% in the year to August 2015.

The RPI 12-month rate for September 2015 stood at 0.8%, meaning that it was 0.7 percentage points higher than it would have been had it used formulae that meet international standards.

Figure E shows the RPI and RPIJ 12-month rates for the last 10 years. Over this period the RPIJ 12-month rate has been, on average, 0.5 percentage points lower than the RPI but the difference has increased to an average of 0.6 percentage points over the last 3 years. Cumulatively, inflation as measured by the RPI is 34.4% over the 10-year period, compared with 27.4% as measured by RPIJ. The use of the Carli formula has therefore added 7.0 percentage points to the change in prices over the last 10 years. A larger version of the chart can be viewed by clicking on it (HTML version only).

Table C shows the RPI and RPIJ 1-month and 12-month rates and index values for the last year.

Figure E: RPI and RPIJ 12-month rates for the last 10 years: September 2005 to September 2015

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7
.Background notes

News

Measuring Consumer Prices: the options for change consultation

The UK Statistics Authority public consultation on consumer price statistics closed on 15 September. We are currently going through the responses to summarise the views raised. This will be published in a response to the consultation by early December. The Authority Board will consider these responses carefully before issuing its final response in the first part of 2016.

Development of a single, official house price index – progress update

We are working with a number of other Government departments to develop a single official house price index that makes best use of relevant data sources across the public sector. An update on progress is included in our latest House Price Index bulletin.

A more detailed quality report (141.9 Kb Pdf) for this statistical bulletin is available. The report assesses consumer price inflation statistics against standard dimensions of quality such as relevance, accuracy and accessibility. The report was last updated in October 2013.

To help users further, very detailed CPI data are now available including the individual price quotes and item indices that underpin the CPI. Please note, the data that are published are at a level which means that no individual retailer or service provider will be able to be identified. The data published covers January 1996 to June 2015. These data are updated once a quarter with around a 2-month lag with the latest CPI publication. For example, the data will next be updated when the November CPI is published on 15 December 2015, at which point the detailed data published will be extended to September 2015.

Internationally, the CPI is known as the Harmonised Index of Consumer Prices (HICP). HICPs are calculated in each member state of the European Union according to rules specified in a series of European regulations developed by the European Commission (Eurostat) in conjunction with the EU member states. Eurostat releases figures for the Harmonised Index of Consumer Prices (HICP) for the month of September 2015 for EU member states, together with an EU average, on 16 September 2015. A summary of the latest European data is available from Eurostat’s database tables. Further information on HICP for the European Union, Euro area and other EU member states is available from Eurostat's HICP web page.

Methods - CPI and other measures of inflation

The CPI, CPIH, RPIJ and RPI are compiled using the same underlying price data, based on a large and representative selection of around 700 individual goods and services for which price movements are measured in around 140 randomly selected areas throughout the UK. Around 180,000 separate price quotations are used every month to compile the indices. The outlets in which the prices are collected are selected randomly. Expenditure weights are held constant for 1 year at a time.

Rates of change for the CPI and CPIH are calculated from unrounded index levels, rather than from the published indices which are rounded to 1 decimal place. The use of unrounded indices increases the accuracy of the calculation. The unrounded index levels for the CPI and CPIH are available from Tables 64 and 65 of the Consumer Price Inflation Reference Tables. By contrast, rates of change for the RPI and RPIJ are calculated from the published rounded indices.

On 15 October 2013, a revisions policy (49.6 Kb Pdf) was published for the suite of consumer price inflation statistics. The policy reaffirms the existing practices for CPI and RPI and sets out the policies for the new CPIH and RPIJ measures.

In summary, CPI, CPIH and RPIJ are revisable in theory though revisions only occur under exceptional circumstances. The RPI is never revised once published.

Publication policy

This bulletin includes the September 2015 data, collected on and around 8 September 2015. Future publication dates for this statistical bulletin are available to January 2018 (the publication of the December 2017 inflation figures). Publication dates from February 2017 onwards are provisional.

Details of the policy governing the release of new data are available from our Media Relations Office. Also available is a list of the names of those given pre-release access to the contents of this release.

In line with the Consumer Price Inflation Pre-Release arrangements, an advanced estimate of the CPI was provided to the Governor of the Bank of England and the Chancellor of the Exchequer 4.5 working days ahead of publication. The Governor shared this information with the Monetary Policy Committee (MPC), and officials present at the MPC meeting, on Tuesday 6 October 2015. The pre-release access to the September CPI figures was extended to 4.5 working days from 3.5 working days due to the timing of the MPC meeting being moved forward a day.

Consumer price inflation for October 2014 to October 2015 will be published on 17 November 2015.